Footnotes: Interstate Banking

1 The focus of the discussion is full-fledged interstate banking, meaning the operation of commonly owned banks or thrifts, or their deposit-taking branches, in two or more states. Banking organizations have other means to conduct operations on an interstate basis, including loan production offices (LPOs), nonbank affiliates, credit cards, deposit brokers, and money desks. Use of some of these options, notably LPOs and nonbank affiliates, predates the efforts since the late 1970s and early 1980s to bring about full-fledged interstate banking. LPOs became popular in the 1960s, and the Bank Holding Company Act Amendments of 1970 opened the door to interstate expansion through nonbank affiliates.

2 The focus in this study is on how the banking industry has changed, particularly regarding geographic structure. The many forces that have combined to compel the changes, that have rendered longstanding restrictions on geographic expansion anachronistic, are for the most part beyond the scope of the discussion. Note should be made, however, of the rise in importance of nonbanking competitors of banking organizations. In 1952, commercial banks and thrifts held 63 percent of the assets of the financial-services industry. That proportion has declined steadily over the years, and at midyear 1995 was just 32 percent. Among the nonbanking competitors of banking organizations are pension funds, insurance companies, mutual and money-market funds, finance companies, securities brokers and dealers, issuers of asset-backed securities, and mortgage companies.

3 The Riegle-Neal Act concentration limits refer to the proportion of national or statewide deposits controlled by a banking organization. Generally, other than for initial entry, the responsible federal banking agency cannot approve an application for a merger or an acquisition by a banking organization if the resultant organization would exceed the statutory concentration limits. In addition, the growth of banking organizations will continue to be subject to antitrust laws.

4 Savings associations have not been subject to the same federal restrictions on branching across state lines as have banks, and a number of savings associations have branches outside their home states.

5 Using the GDP deflator to adjust for inflation, assets grew by three percent (1984-1995), deposits grew by 13 percent (1984-1988) and then shrank by 20 percent (1988-1995). However, as can be seen in Figure 4, the thrift industry has exhibited a decline in both deposits and assets since 1988.

6 The traditional approach to antitrust enforcement in banking relies on concentrations of deposit holdings within a bank's local market area in gauging the level of competition.

7 Source: SNL Securities.

8 According to SNL Securities, funding sources have not been disclosed in nine acquisitions, and two acquisitions are being financed by debt.

9 See John P. O'Keefe, "Banking Industry Consolidation: Financial Attributes of Merging Banks," FDIC Banking Review, Vol. 9, No. 1, pp.18-38.

10 Daniel E. Nolle, "Banking Industry Consolidation: Past Changes and Implications for the Future," Working Paper 95-1, Office of the Comptroller of the Currency, April 1995.

11 Source: Reports of Condition and Income, June 30, 1995.

12 Institutions are generally prohibited from converting their membership from one insurance fund to the other. Since 1989, however, SAIF-member savings associations have been permitted to convert their charter to that of a savings bank or commercial bank while retaining SAIF membership.

13 These failures include Bank Insurance Fund-member federal savings banks resolved by the FDIC, institutions resolved by the FSLIC prior to the enactment of FIRREA, and institutions resolved by the Resolution Trust Corporation (RTC) or closed by the OTS through an "accelerated resolution program."

14 The increase in the average size of institutions supervised by each of the four federal bank and thrift regulators over the last 11 years was: FDIC, 117.5 percent; OCC, 155.4 percent; Federal Reserve, 120.0 percent; and OTS/FHLBB, 64.4 percent. All of these increases exceeded the rate of inflation for this period, which was 42.2 percent, as measured by the Consumer Price Index.

15 The lead bank is considered to be the largest bank or thrift owned by the holding company. Not all banking companies are expected to consolidate all of their subsidiaries (see previous discussion about remaining branching restrictions and other considerations).